September 2014 Month in Review - Home Sweet Loans
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September 2014 Month in Review
Contents Feature – “Safe as”... Strong fundamentals from around the nation 3 QS corner 4 Commercial - Retail 5 Residential 22 Rural 47 Market Indicators 55
Month in Review
September 2014
“Safe as”...Strong fundamentals from around the nation
There are times when we all need a great protector – even the ‘alphas’
amongst the crowd can do with a little downtime so they can hand over
responsibility for their security.
Safe is not conservative. Safe is making it to the far what sort of property suits your needs and wants,
side of the park in a particularly competitive game of plus the elements that impact it’s value, can be
Red Rover. Safe is triple checking the belay on your overwhelming. Riding the waves of a market will
zip line. Safe is the last five positions on the board induce a stomach churning sickness if you don’t
game. Safe is not about avoiding risk all together – factor in your hypothetical investment Kwells.
it lies in making sure that when you do leap, a few
This month, our valuers are about to let in you in
comfy pillows will break the fall if things should go
on the sure fire ways to take some potential sting
wrong.
out of a shakey market by buying right in the first
place. It isn’t just a discussion of blue-chip property –
A large part of peoples’ decision there are a number of factors in each of our service
to choose property investment areas that will help make your property stand up
when others fall over. Herron Todd White’s team has
over shares is that tangible feeling volunteered, location by location, what to look for in
So why not take advantage of our generous nature
of security created by bricks and your investments to help secure the portfolio.
and read up on the ways you can lock down some
mortar. For commercial investors, we give the same solid investments.
treatment to the retail sector. Our experts are telling
It’s solid, dependable and let’s you looks upon the And one final tip about safety – don’t get complacent.
you all about what makes for a good retail buy in
asset and says, “Well, if all else goes wrong, at least I As the great Aaron Sorkin once said, “Just when you
your area of interest. It’s an overview of the retail
have THAT!” think you have the ball safely in the end-zone, you’re
Feature
types that are consistent performers. We tackle
back to delivering pizzas for Dominos,” so watch your
Of course there isn’t one quick fix to make sure price points and rental details so you can get the
back.
you’re buying wisely. Real estate is a simple term geographic nitty gritty on the sector, as well as an
for a complex collection of assets. The options are overview of how this market is tracking for each of
diverse, and the factors that influence value and our service areas.
rent are just as varied. Getting your head around
3
Month in Review
September 2014
QS Corner – Is it worth depreciating older and smaller properties?
Some of the best advice that could be given to first therefore not qualify for tax depreciation. However
time investors is to start small and don’t bite off you may not be taking into account all the eligible
more than you can chew in terms of what you buy or items that can be depreciated and that go towards
what you borrow to buy. With interest rates at record minimising your tax liability.
lows, it could be tempting to borrow big and over-
Chances are, in older style units, houses, commercial
commit.
and industrial buildings, certain items have been
Whether you start out in a small apartment or a replaced or upgraded over the years, such as hot
house on a quarter acre block on the outskirts of water systems, carpets, kitchen appliances, window
town, the bigger and newer the property is, doesn’t treatments and smoke detectors to name just a
exactly mean the better it is. Whether for a first few. All of these items qualify and all contribute to
time or a seasoned investor on their third or fourth a worthwhile amount of depreciation which is often
property, the reasons for investing in real estate overlooked. If the property has had a renovation the
can vary case by case. However it would be safe chances of more items qualifying for depreciation are
to say that the common factor usually is “to make greater still.
money”. Making this dream a reality requires a little
Should you require further information or would
effort and financial consideration along the way and
like to ask one of our quantity surveyors a specific
a tax depreciation schedule can be one of the most
question relating to tax depreciation, please send
beneficial tools in your investor tool kit.
your enquiry to tds@htw.com.au.
There is a misconception amongst many investors,
property managers and even other property advisors
that when it comes to depreciating investment
property, only brand new or recently built property
can qualify for deprecation, but you’d be surprised
how much can be depreciated on older and smaller
Surveying
Quantity
properties too.
Take for example a typical 1960s unit in a three-level,
12-unit walk up complex comprising 2-bedrooms and
1-bathroom in average and slightly dated condition.
On paper you would automatically assume that the
property was not worth depreciating and would
4
Commercial
Month in Review
September 2014
New South Wales
Overview and household goods categories grew by 4.1% and
Retail carries risk – and it’s the sort of risks you 3.9% annually over the ten year period.
cannot control. Big swings in the economic fortunes
While retail conditions have generally improved for
of this country, and worldwide, often hit both sudden
most retailer types in Sydney over the past year,
and hard. Technology in the sector has made buying
the retail environment has become particularly
online about as easy as crossing the road. All sorts
supportive for food based retailers located within
of influences can impact a retail investment’s bottom
Sydney’s major town centres. Major town centres
line.
have become a focus for new high density residential
This month, our Herron Todd White commercial team developments and are underpinning growth in the
has had a look at what makes a safe investment in consumer base for nearby retail businesses. As a
our country’s retail sector. Each office has also given result, these areas are attracting a high portion
Balmain and Newtown in the inner west; Hurstville
a terrific overview of their retail market, so you can of retailer demand from food related businesses.
and Cronulla in Sydney’s south; and Cabramatta in
become a little better informed. Analysis of leases recorded by Leasing Information
Sydney’s outer west. While areas such as Burwood,
Services, a provider of online retail leasing data,
Sydney Hurstville and Cabramatta may be viewed as less
shows that approximately half of the new retail
Retail conditions for Sydney have improved notably trendy or glamorous retail locations, these areas
leases that have been signed in Sydney’s main retail
in the first half of 2014. Supported by a rebound benefit from strong leasing and owner occupier
strips from 2013 to date have come from retailers of
in the NSW housing market, retail spending demand from businesses that cater to consumers of
eat in and takeaway food. Such observations provide
strengthened to above average levels. Seasonally multicultural goods and services. Average prices for
grounds for us to view food related retail assets as
adjusted NSW retail turnover rose by 8.8% in the your standard 80 to 100 square metre retail shop
possessing good investment fundamentals.
year to June 2014 (ABS), well above the trailing in these areas are relatively high compared to the
ten year annual growth rate of 4% for the state. In However, as expected, there are further prerequisites broader market and prospective purchasers should
particular, spending in the cafes, restaurants and that would make a retail asset stack up to what expect to pay in excess of $1 million for good quality
takeaway food retail category has shown strong we would view as a relatively safe investment. retail assets within this size range.
Commercial
results in both short term and long term measures. Preference would be drawn towards areas of
Further to locational factors and retailer type,
Retail turnover in this category has grown by 24.5% Sydney that have long proved their ability to attract
several other factors are worth considering when
(seasonally adjusted) in the year to June 2014 and steady retailer demand, as well as maintain above
determining the soundness of a potential retail
averaged 6.1% compound annual growth over the average rents and capital growth prospects. Town
property investment that has already ticked these
past ten years (ABS). Comparatively, retail turnover centres that we view as fitting these criteria include
boxes. Retail properties with a strong retail tenancy
in the clothing, footwear and personal accessories Manly and Chatswood in Sydney’s north; Burwood,
profile and a long remaining lease term (or weighted
6
Month in Review
September 2014
lease expiry for a multi-tenanted asset) are more centres gradually began to fail as the anchor general Most of these centres are owned in separate strata
favourable. Investors should also diligently assess stores were too small to compete with the ever elements and individual shops and offices are traded
whether the current passing rent is significantly expanding supermarkets in the group and regional on a reasonably regular basis. The opportunities
above market, as such assets hold potential for centres. The model is still being utilised in the newer presented are generally purchased by local investors
a drop in terminal value (and result in hindered areas of Gungahlin although the neighbourhood or owner-occupiers.
capital growth) should the rents need to revert centres are closer to the group centre model and
Neighbourhood centres seldom trade in one line
back to market on lease expiry, prior to resale. are designed to cover a wider and larger population.
although the ten units comprising the Isaacs Centre
With this in mind, we believe that purchase of good Some neighbourhood centres in the older suburbs
sold recently for $1.64 million showing an initial yield
quality suburban retail assets at analysed yields of are being revitalised but these are usually centres
of 6% which will rise to 10% when vacancies of 168
around 7% or above present good scope for yield where the general store is sufficiently large enough
square metres on the lower level are occupied. The
compression (hence capital growth) when resold in to compete on service and product line availability
Centre is anchored by a small supermarket of 153.3
the future, provided that market conditions further to survive. Examples include Melba, Cook and
square metres. The purchaser was understood to be
improve. Yarralumla shops.
a local investor.
Canberra Where are the investment opportunities?
A number of the units in the Torrens shops are being
Retail facilities were established in the older suburbs The regional centres are tightly held with owners
offered for sale in one line as well as individually.
of the ACT in a hierarchical manner, starting with such as Queensland Insurance (CBD Canberra
neighbourhood centres in each suburb generally Centre) and Westfield (Belconnen Mall and Woden Shops in the Nicholls Centre, excluding the
adjoining the local primary school and anchored by Centre). Leda operates the Tuggeranong Centre. supermarket, are for sale as individual units or in
a small general store and upwards of six or seven Ownership of the retail facilities in the Gungahlin one line at prices which would suggest a net yield of
specialty stores such as bakeries and butcheries. The Centre is fragmented. The only sale which has circa 6.25%. The individual price range is $525,000
next level was the group centre which incorporated occurred recently in this sector is the Riverside to $625,000 and the total in one line price is $2.2
a supermarket, upwards of 15 to 20 specialty Plaza in Queanbeyan, a 22,000 square metre centre million. We suggest this will be of interest to the local
shops and office suites for local professionals. The with supermarkets and Target department store. It market.
regional centre was the ultimate link in the retail was sold by AMP for circa $62.5 million at a yield
Commercial
The Homeworld Centre is a mixed use facility with
chain incorporating not only specialty shops, but understood to be close to 8%. Opportunities in this
a substantial retail element supported by an Aldi
upwards of three supermarkets and two department sector seldom come to market however if available
supermarket and Dan Murphy and Dick Smith outlets,
stores. Discount department stores crept into the would command great interest due to the relatively
with a total area 12,245 square metres of which 3,739
regional centres and indeed in a number of group high disposable income apparent in the ACT.
square metres is located at first floor level and is
centres. This hierarchy served the community well
Group centres seldom come to the market although leased in one line to the Federal Government on a
for a number of years however the neighbourhood
individual elements are traded at a local level. lease expiring in July 2020. The purchase price was
7Month in Review
September 2014
$31 million, showing a yield assuming full occupancy A notable transaction in the Wollongong LGA to advertising, the current tenants are on a new five
of circa 11%. Vacancies were running at close to occurred in July 2014 for the Rockmans tenanted year lease and have a strong trading history over the
16% of the retail area. Sentinel Property Group, an retail property in Corrimal for $1.06 million, past eight years – a long time in the hospitality game.
unlisted trust based in Brisbane, was the purchaser. showing an analysed market yield of 7.74% and a This property sold for a yield of 8.5% with 3% annual
rate of $2,494 per square metre of lettable area. rental increases built into the lease. At this value
Overall Canberra does not offer many retail
In the Southern Highlands the May 2014 sale of level, this is about as strong and safe as you get and
investment opportunities however if a major centre
the Westpac retail branch along Bong Bong Street, for a mere $4.4 million the investor will see an 8.5%
was offered to the market we would anticipate
Bowral has been the highlight at $5.09 million annual return.
substantial institutional interest.
reflecting an analysed market yield of 6.5% and a
At a different level of the retail market, the brand
Illawarra rate of $6,680 per square metre of lettable area.
new Woolworths at Medowie has sold with a fresh
After a prolonged period of static conditions there
Newcastle 20 year lease in place to the strongest tenant
are signs that the retail property market is starting
This month in our retail discussion for the Newcastle you’re likely to get. This property recently sold
to recover as exhibited by an increase in sales and
market we’ll rest the GPT/Urban Growth proposed prior to auction for a yield of 6.5%. A much lower
increased appetite of investors attracted by yield
development, we won’t mention the Urban Renewal yield than The Dockyards sale in percentage terms,
arbitrage. Purchasers are still looking for assets with
projects or the State Government’s promised however the 20 year lease indicates a safe as houses
strong lease covenants, while market demand thins
spending on the new light rail system. We definitely investment for a long time with the potential for
out considerably for properties with prices higher
won’t talk about the disastrous state of local politics turnover rents in the future. Oh, you’ll need to spend
than circa $2 million.
- no ICAC investigation speak here – although we $18.9 million for a property like this. So in very
should note that the local retail market has its eye on general terms, as the risk increases, so does the yield
Rents remain stagnant with no all of these issues. Today we’ll speak about safe retail and this applies to every level of the market from
evidence of any broad increases, property investment. entry level to shopping centres. Risk can come in the
form of location, demographics, property, tenant,
while vacancy rates have We’ll use two recent sales to illustrate two different
exposure and surrounding development and all of
iterations of the word “safe” at different levels of the
stabilised. retail market and what that means for rental returns.
these factors will play a role in the value and yield of
Commercial
retail property.
The Wollongong CBD continues its transformation The Dockyard is a local well known watering hole
with the mall refurbishment works moving forward located on a high exposure corner at Honeysuckle. NSW Far North Coast
while this quarter will see the completion of GPT’s It’s pretty much the best retail location for a pub and The commercial retail market on the NSW North
West Keira shopping centre development. The most restaurant in the CBD. If you go to Honeysuckle, it’s Coast continues to prove difficult. This is generally
significant development in the Southern Highlands is very difficult to avoid The Dockyard - you basically due to national and international issues which affect
the Coles redevelopment in the Bowral CBD with site walk through the joint to get to any of the other confidence in the market place. There is generally
works underway. restaurants and cafes on the Boardwalk. According downward pressure on rents, with increased
8Month in Review
September 2014
vacancies and increasing prevalence of rental building and the refurbishment of the Wigmore are lower than the yields being demonstrated by
incentives such as rent free holidays. There remains Arcade will boost the Ballina CBD and result in some investors.
reasonable demand for properties with a strong gains in rents and ultimately value.
Coffs Harbour
national tenant profile and weak demand for local
The Lismore retail market has also had some The local Coffs Harbour retail rental market is under
based tenants or secondary stock.
significant changes over the past four years with pressure with a high level of vacancy and downward
Byron is showing signs of recovery with strengthened falls in rents of up to 40% after the global financial pressure on overall rental levels. Many of these
yields and positive signs for the domestic tourist crisis. We have seen a steady increase in rents vacancies are within the main commercial strip
market which is likely to be boosted by a weakening since the beginning of 2011 to a more stable level. centre. Despite the concerns over the retail rental
Australian dollar and strong media attention on We believe Lismore is still in a state of flux with market, the limited available market evidence within
terrorism and airline fatalities. Byron Bay continues significant uncertainty in the Lismore CBD which has the city centre is displaying a firm level of yields.
to have strong market appeal with prime locations been exacerbated by the closing of Target Country, A secondary located multiple occupancy building
showing relatively stable rents and good demand Williams shoe store and Crazy Clarks variety store, recently transacted at a 7.4% analysed yield. The
from tenants and investors alike as it tends to be all relatively large retail spaces. These vacancies are property had dated presentation and required
well held and relatively resilient to broader economic likely to put downward pressure on rents and result upgrade but was soundly leased to long term tenants
conditions. in higher yields being demanded by investors as on an overall rental of $310 per square metre.
uncertainty increases. Market activity is centered on
The Ballina retail rental market has generally been As with most commercial investments, the major
owner occupied space at the lower end of the market
described as being in a state of flux. The Ballina investment decisions are centred on location, quality
with limited investor sales over the past 12 months.
CBD has experienced a very weak retail sector as a of the building, security of tenancy and the terms
An example of an investment sale that is considered
result of the closure of the Woolworths supermarket and conditions of the lease. Of increasing local
good buying in Lismore is 50 Magellan Street, a multi
in River Street in 2011 and a shift in spending to the importance is the access or proximity to car parking.
tenanted building (two shops, one restaurant) that
shopping centres away from the traditional CBD. The
recently sold for $210,000, showing an analysed The market appears to be seeking prime bulky
redevelopment and re-opening of the Woolworths
yield of 8.27%. Other owner-occupied sales below goods retail outlets with long term leases to national
complex in 2014 has become a significant feature for
$350,000 have tended to indicate yields from 6.5% tenants. Recent sales have ranged from 7% to 8% as
Commercial
this locality as it creates attraction and has lifted the
to 7.5%. opposed to older buildings with local tenants which
profile and appeal for tenants and the general public
have been exchanging at 9% to 10.5% yield.
alike. The central retail arcade (Wigmore Arcade) Ultimately stable long term tenants are the key to
is also set to be refurbished. This area is currently value for investors. Purchasing vacant or partially
under-performing with a number of vacancies vacant properties which are then leased up to long
creating uncertainty in what was traditionally the term tenants will at this time add value. However
strongest retail section of the CBD. It is expected competing with owner-occupiers to follow this
that the completion of Woolworths, the proposed purchase and lease up process is fraught with
new large chemist within the Cummings Retravision danger as the yields being shown by owner occupiers
9Month in Review
September 2014
Victoria
Melbourne low yields with strong demand from investors. If
Statistics released by the Australian Bureau of vacancies continue to grow, rents may decrease and
Statistics indicate that retail turnover across yields may then soften as this may be perceived as an
Australia recorded positive growth with retail trade increased risk in the eyes of investors.
increasing by approximately 4.7% nationally in the
The Melbourne Central Business District (CBD) retail
12 months to May 2014 and in Victoria by 4.3%.
market is going through a transitional phase in
It appears that there has been a slight overall
accordance with the gradually changing trend in CBD
improvement in consumer sentiment. The food
demand drivers. This change has a major effect on
sector (cafés, restaurants, supermarket, grocery and
the face of CBD retailing and the performance of CBD
liquor), household goods, clothing and soft goods
retail assets, which have been a consistent performer
saw increases in growth, while furniture, footwear
within the retail market. Some of the key factors
and accessories saw a decline.
affecting this change are:
Strip Retail
the exception of a minority of stores yet to open.
The majority of prime retail strip precincts in 1. Changes to legislation for longer trading hours.
The state of the art shopping complex owned
Melbourne are continuing to experience increasing
• In late April this year late night week day shopping by Colonial First State Retail and Singapore’s
vacancy rates. The hardest hit retail strip has been
in the Melbourne CBD was extended to at least Government Investment Corporation has
Bridge Road, where it is not uncommon for three or
7pm. The new times affect all stores located in a rejuvenated the Lonsdale Street retail block. The
four shops in a row to be for lease. Chapel Street in
two-block area from La Trobe Street to Bourke ground floor consists of well-known international
South Yarra, Burke Road in Camberwell and High
Street Mall. This initiative has helped drive retail and high-profile national brands, while high end
Street in Armadale have also been reported to have
spending within the Melbourne CBD. international brands such as Coach and Kate
reached their highest vacancy levels in five years.
Spade front Lonsdale and Little Bourke Streets.
Retail strips that have defied this trend include 2. Redevelopment of CBD retail centres and increased
Emporium has been a local success, receiving
Commercial
Church Street in Brighton, Acland Street in St Kilda, presence of international retailers
creditable reviews by the media and the general
Glenferrie Road in Malvern and Toorak Road in
• 20 August 2014 marked the official opening of public. Emporium has provided much needed prime
South Yarra. Despite vacancy issues, well located
the Emporium Shopping Centre. Offering more retail space in the city for international retailers
properties in prime strips are continuing to sell on
than 200 shops, the centre is fully leased with who have been scouting Australian stores for
10Month in Review
September 2014
leasing opportunities. International brands that destination with an increasing need to become or invest in new retail developments.
have set up flagship stores in Emporium include more competitive in the global retail market. Just
A summary of some of the changes affecting
Uniqlo, Topshop, Brooks Brothers, Braun Buffel, this month, The Economist Intelligence Unit’s
retailing are as follows:
Coach, Chanel and Adidas. Global Liveability Index rated Melbourne the
world’s most liveable city for a fourth consecutive • The business 1, 2 and 5 zones have been replaced
This influx of new brands has year, outscoring Adelaide, Sydney and Perth in the by a new commercial 1 zone. This zoning allows
top ten. The award comes after Melbourne was most types of retail uses without the need for a
also been a major driver for ranked by world renowned travel magazine, Conde planning permit;
redevelopments as developments Nast Traveller, as the world’s friendliest city.
• The business 3 and 4 zones have been replaced
are refurbished in order to Recent CBD retail sale by a new commercial 2 zone. This zone allows
Shop 1, 250 Flinders Street, Melbourne sold on multiple retailing and commercial uses, including
accommodate branding needs and a record passing yield of 3.55% at auction on 15 small supermarkets up to 1,800 square metres,
requirements. August 2014. Leased to Backpackers World Travel on while shops and supermarkets greater than 1,800
a six year lease that commenced in July 2010 with square metres are subject to permit applications to
3. Growth in residential development within the CBD
4% annual increases, the 38 square metre retail shop Council;
• The increase in high density living and the sold for $2.33 million (or $61,316 per square metre
• All existing floor space restraints on retail and
significant rise in the number of residential high of building area) on a passing net rental of $82,800
office floor space will be removed in the new
rise developments within the CBD in recent years per annum, equating to $2,179 per square metre net
commercial 1 and 2 zones;
has been highly supportive of retailing within the per annum. This sale indicates the continually strong
CBD. With the increase in residential population, performance and demand for CBD retail assets and • Small supermarkets up to 1,800 square metres will
the need for retailing increases and this has had a sold well above the reserve price. be permitted within the industrial 3 zone;
positive effect on the retail market performance
Good buys within the area • Extensions to small strip shops for additional retail
within the CBD.
This is a relatively subjective topic, however the development will be permitted where they are
Commercial
4. Melbourne is a worldwide tourist destination introduction of the reformed zones in Victoria within 100 metres of an existing activity centre.
which was implemented on 1 July 2014 offers new
• Melbourne has become a worldwide tourist
opportunities for developers and investors to develop
11Month in Review
September 2014
Examples of some positive impacts of these changes
and opportunities that may occur due to this change
include:
• Given that a retail shop is now a permissible use
and the cap on floor space has been removed, the
flexibility for retail development in business 2 and
5 zoned lands has increased.
• As retail shop use is now permissible subject to
a permit on business 3 and 4 zoned land, the
flexibility for retail developments and opportunities
within these zones is likely to increase.
• There is the potential for an increase in the number
of smaller scaled supermarket developments
within more zones.
Murray Riverina
With the exception of centrally located properties in
the central Hare Street precinct, there are real gains
to be made by attracting national retailing tenants
when it comes time to sell. This can be done in a
variety of ways but most commonly through local
agents or alternatively making private approaches
to businesses where a gap in the market is identified.
Commercial
There has been some activity for redevelopment
or owner occupied properties of late though
most agents are reporting a challenging selling
environment.
12Month in Review
September 2014
South Australia
Adelaide easy to see that stores without an online presence Parade at Norwood, especially those with secure long
Weak local economic conditions are set to are finding it more and more difficult to compete. term leases to recognisable national tenants. As such
persist in at least the short to medium term, with these properties tend to be tightly held and highly
As such the South Australian retail sector appears to
unemployment currently at the forefront of many sort after when (only very rarely, as in less than one
be facing an extended period of consolidation that is
people’s minds. Only this week Arnott’s announced per annum) released to market. These three locations
expected to continue, at this stage, well beyond 2014.
120 jobs at their Marleston biscuit plant are to be lost have had noticeable increases in vacancies over the
over the next 18 months and Inghams announced In general, sales transactions have been fairly past few years; however, in the long term all of these
that their turkey processing plant will close in limited with rental rates and yields continuing to retail precincts are expected to recover in line with
December which will see another 79 jobs go. With soften across most sectors. Leasing activity has improving economic conditions. Prices for these
ever increasing cost of living pressures it is easy to been somewhat volatile since the latter part of properties are upwards of $1 million and historically
see why discretionary spending continues to tighten. 2008 with a weak 2009, slight improvement in 2010, yields are fairly stable are around 6% to 8%.
a weaker 2011, a slight improvement in 2012 and
On a positive note Rundle Mall is now getting closer
The retail sector has been followed by weaker sentiment during 2013. There
to finally being complete after being in various stages
are noticeably more vacancies occurring within strip
particularly hard hit, facing not shopping precincts and incentives have increased
of upgrade since March 2013, which has obviously
impeded access to all stores at various stages of the
only tough economic times but the within certain sectors. It appears as though with
upgrade and more than likely kept some shoppers
in the leasing market rentals generally peaked in
changing face of retail. the period of mid 2006 to late 2008 and have not
away. Completion is expected towards the end
of October in time for Christmas shopping. Myer
With online stores ever increasing in popularity, shown any significant growth within the past two to
also had it’s grand opening the other night after
even when the Australian dollar improved above three years. Many escalations in rentals have been
completing the modernisation and refurbishment of
parity with the US dollar allowing retailers to reduce by predetermined mechanisms by a factor of the
their flagship store located in The Myer Centre along
prices to try to improve sales many consumers used movement in the Consumer Price Index (circa 2%
Rundle Mall.
the accessibility of overseas stores to purchase to 2.5% per annum) or by a fixed increase typically
equivalent products at even cheaper prices. In between 3% to 5% per annum. These mechanisms
Commercial
Adelaide, bricks and mortar stores are unable to have generally outperformed the market with many
offer the range shoppers can find online and where rentals still below pre 2007 levels.
as in the past there wasn’t any option but to buy
The most consistently performing retail investments
local, the internet has changed this forever. Online
are considered to be those located in the traditional
shopping is open 24 hours in the comfort of your own
blue chip retail locations of Rundle Mall and Rundle
home and products get delivered to your door. It is
Street in the CBD, Jetty Road at Glenelg, Norwood
13Month in Review
September 2014
Queensland
Brisbane yields of between 7.50% and 8.75% depending
The Brisbane retail property sector has seen steady on the location. This is due to a smaller pool of
economic progression throughout the first half investors, being local private syndicates, high net
of 2014. This has resulted in an overall increase worth individuals or institutional funds. A notable
in sector confidence. Progression can be partially sale during the first half of 2014 is the retail centre
attributed to the bank interest rate remaining low located at 157 Oxley Station Road, Oxley for $34.62
which has in turn created a stable platform for million at an analysed yield of 7.58% and a rate of
firming yields. Research also shows that the annual $4,881 per square metre of GLAR. The property is
retail sales turnover growth was 4.9% which is anchored by Woolworths which commenced trading
well above the long term average. This further in July 2013 on a 20 year term. The complex sold
demonstrates how well retail properties are faring in partially leased to 16 tenants with five vacancies and
the current economic environment. a WALE (by income) of 11.04 years.
price points. A summary of these different sectors is
In the first half of 2014 the sub $10 million market In summary, we believe that the Brisbane retail as follows:
remains in strong favour with investors resulting in property market has been steadily improving in the
• Entry level retail investment often consists of
firming yields which range between 6% and 7.5% for first half of 2014 with prime locations being in high
small stand alone shops in suburban areas. This
properties in prime regional locations and 7.5% to demand from tenants and investors. Secondary
type of property generally contains secondary
8.75% for sub-regional and neighbourhood locations. retail properties should be analysed and assessed
quality tenants (usually attracted by lower rental
The discrepancy between the two types of retail thoroughly.
levels) and is often secured by short term leases
property highlights the importance of location in
Darling Downs only. Due to a high number of buyers in this price
this asset class. An example of how retail property
Due to the historically low interest rates, local bracket (often these properties are similarly priced
yields in Brisbane are gradually firming is the sale of
selling agents are reporting strong demand from to residential properties), the yields achieved are
2138 Sandgate Road, Boondall which sold on 1 May
commercial and retail property investors. Properties often lower than would normally be expected.
2014 for $3.98 million at an analysed yield of 7.74%
with good quality tenants on long term leases are
and a rate of $4,201 per square metre of GLAR. • The CBD retail market offers investors
Commercial
in short supply and are usually sold quickly when
The property is commonly known as ‘Boondall IGA opportunities between $400,000 and $3 million,
offered to the market. Properties without long term
Supermarket’ and is single tenanted by IGA with a with the variance due to size and location within
tenants are considered far less appealing to investors
term certain of 7.78 years. the CBD. In general this sector offers local quality
and generally see a softening of the expected yield.
tenants (the major national retail groups are
Retail centres with a higher price point over $10
Retail investment opportunities in Toowoomba can located in Grand Central Shopping Centre), usually
million are generally achieving slightly softer
vary over a number of different property types and secured on shorter term leases. There has been
14Month in Review
September 2014
increased activity in this sector over the past has been clearly evident at recent auctions that have development including a 7-Eleven service station,
12 months due to the lack of supply of blue chip witnessed higher than average attendance rates, four retail shops and one standalone commercial
investments. abundance of bidding activity and clearance rates tenancy. This reflects an analysed market yield of
that have not been witnessed for several years. 7.38%.
• Convenience and small bulky goods centres
generally sit in the $2 million to $10 million price Against this backdrop, there remains a significant
bracket and are usually very tightly held with few variation in yield and value levels between primary
Quality investment stock, however,
sales recorded. A sale of note in this price bracket and secondary properties. is still being tightly held and the
was the Toowoomba Officeworks which sold in an
off market transaction for $7.47 million at a yield
The consistent performers over the past few years inequality between supply and
have been neighbourhood retail centres, particularly
of 7.03%.
those anchored by a major supermarket chain or
demand is forcing some investors
• The higher end retail investments include larger service station. Such properties have maintained to also canvass the market for
bulky goods centres and supermarket-anchored good occupancy rates and rental levels have
shopping centres. These investments usually sit at generally remained fairly steady.
secondary investment stock.
a higher price point and are often bought by larger This is providing sellers with a unique opportunity to
While yield levels for these properties were hit hard
institutional investors. There has been recent divest properties that have been otherwise difficult
in the market downturn, quality investment stock
activity in this sector with the sale of Toowoomba to sell in years gone by, while the yield premium
with strong lease covenants are enjoying strong
Plaza, a Coles and K-Mart anchored centre, for attributed to secondary properties is providing
demand. This is resulting in yield compression and
a reported $57 million and Wilsonton Shopping buyers with an excellent return on investment.
has been evidenced by several recent transactions
Centre, a Woolworths and Coles anchored centre,
including: Examples of these high returns on investment are
which sold for $54 million.
typically seen in strata title premises which have a
• Bronberg Plaza, 138 Slayer Avenue, Bundall – sold
Gold Coast narrow range of potential uses and limited, if any,
in May 2014 for $14.4 million. A neighbourhood
The Gold Coast property market remains subdued, redevelopment prospects. A few notable transactions
retail complex comprising 13 specialty retail shops
but is now pointing in the right direction with an include:
Commercial
plus an IGA supermarket, 7-Eleven service station
increasing amount of evidence indicating a steady
and balance land. This represents an analysed • Lot 106 Pivotal Point – sold in July 2014 for $1.612
recovery.
market yield of 8.05%. million. A strata titled restaurant with a new 10 + 5
The volume of sale transactions has shown + 5 year lease in place. Reflects an analysed yield
• 341 Hope Island Road, Hope Island – sold at auction
significant improvement in the latter part of 2013 and of 8.87%.
in August 2014 for $6.77. A modern style mixed use
first half of 2014. The improving market sentiment
15Month in Review
September 2014
• Wings Day Spa, Surfers Paradise – sold at auction with longer term tenants looking to have some rental with any adjoining specialty tenancies. There are
on 15 August 2014 for $850,000. A strata titled, abatement or reduction in return for new longer term however some exceptions in weaker markets such as
purpose built day spa subject to a new 5 + 5 year lease covenants. This has been across all locations, Emu Park. Rentals within these anchored centres and
lease. Reflects an analysed yield of 10.4%. with vacancy levels generally considered to be other retail centres in high exposure localities are
high at present, although there has been very little generally between $450 and $600 per square metre
As more and more investors gravitate towards
increase in vacancy in the past six months in many per annum gross. In recent years, retail centres that
quality assets, it highlights the importance of
locations. have been strata titled and offered to the market
maintaining focus on the key fundamental in real
individually are now poorer performing centres, with
estate of location, location, location. Coupled with We have also recently seen a strong retail sale of
higher vacancies and reduced rental levels and are
a good tenant profile, this will ensure that buyers a bulky goods type holding with a ten year lease
generally less secure investment options.
entering the market are best positioned to make the to Supercheap Auto and two smaller tenancies to
most of the improving Gold Coast retail investment national tenants on three and five year leases, which In terms of price point, the most recent significant
market. has contracted after an expressions of interest retail sale was an IGA anchored centre located in Emu
campaign for a reported price of circa $3.8 million, Park which had significant vacancies in the specialty
Sunshine Coast
which represents a circa 7.2% yield. This is further tenancies. This was a distressed sale at a price of $7.1
The themes of a strong retail property investment on
evidence of the strong yields being paid currently for million which we have analysed to a market yield of
the Sunshine Coast have not changed much over the
retail holdings of good quality, in good locations with 10.16%. More locally within Rockhampton, a retail
past three years. These have typically been around
strong national lease covenants in place. centre located on Farm Street with a lesser profile
location, preferably in one of the main retail strips,
anchor tenant sold for $2.975 million in September
overall size and frontages and strong tenancies. Rockhampton
2013 at an analysed market yield of 12.73% and with
The retail sector in Rockhampton has been relatively
The best performing retail properties in this regard a WALE of 3.08 years.
flat in recent times, with an increase in vacancies in
over the past three years has been in the Mooloolaba
retail space in both the CBD and inner north areas While some investment opportunities exist across
Esplanade and Hastings Street precincts. There
and reduced demand for larger and older tenancies the retail sector, many of these properties are
have been a number of sales in that time with good
as well as tenancies located away from main retail experiencing extended sale periods due to various
quality national and long term local tenants in place,
Commercial
precincts. However investors are still active for well factors including time remaining on leases, current
typically at yields below 8%.
presented retail centres providing a good tenant vacancies and general investor sentiment.
The most difficult aspect at present in trying to work profile and mix, as well as strong WALEs or unexpired
Gladstone
out fair value for a retail investment relies on the lease terms. Generally, more modern retail centres in
The Gladstone retail market is intrinsically linked to
question of what is a fair market rental. We have this region with strong anchor tenants such as ASX
the ongoing activity surrounding the major liquid
noted an increase in the level of incentives for retail listed retailers appear to be performing well, with
natural gas (LNG) projects being undertaken in the
tenants over the past 12 months across all locations, low vacancies and higher rental rates associated
region.
16Month in Review
September 2014
There has been little activity in the local retail market major shift of retail occurred during the most recent available throughout the city, there are likely to be
in Gladstone over the past few years. Rents have Canelands expansion in late 2011. The retail stores very limited opportunities to pick up a good buy for
remained fairly stable and there have been only have largely been taken up by commercial offices, a retail asset in the Mackay area. The region is likely
limited transactions. Yields softened slightly over the with some retail shops remaining. The area has to see further easing in rental levels as a result of
course of 2013 and early 2014 and vacancies remain also taken on more of an entertainment and dining increasing vacancies and therefore most investors
relatively low. precinct. would be cautious about the security of future cash
flows.
We consider that market conditions will remain The Mackay Regional Council is embarking on a
generally stable however there is potential for price redevelopment and revitalisation project for the On a positive note, Bunnings has commenced
vulnerability and some market volatility due to the city centre to try to stimulate activity for retail construction of new warehouses in Paget to the
weakened local economy because of the decline in businesses. The project will include new footpath south of the CBD and Richmond to the north. The
peak workforce numbers for the construction of LNG layouts, alfresco dining and modern landscaping and downside to this is that Bunnings will reportedly
projects. art features. vacate the existing Greenfields store which will result
in an increase in supply of vacant bulky goods retail
Mackay There has been some renewed interest in the CBD
floor space.
The Mackay city centre traditionally undertook a since mid 2013, with the completion of a number
major retail role however was decentralised with of new bars, restaurants and new franchise juice Hervey Bay
the construction of Canelands Shopping Centre in bars and dessert stores. In addition, lease pre- Hervey Bay is all abuzz with the recent opening of
the mid 1970s. The retail function of the city centre commitments have been agreed for two retail the extension of Stockland Hervey Bay. A significant
further deteriorated as Canelands expanded. The last spaces on the fringe of the CBD for a Mexican number of national brands have come to town
bar and restaurant and a new barber shop. These including Muffin Break, Go Sushi, Kick Juice, Kmart,
investments show that there is still confidence in the Cotton On Mega, Harris Scarfe, Best & Less, Dusk,
hospitality market. Specsavers, EB Games, Katies and Michael Hill.
Stockland Hervey Bay is now almost twice its original
The retail market, particularly for perishables, has
size and includes more than 100 specialty stores, a
become more fragmented since 2010, with retail
Commercial
500-seat cafe style food court and 1681 car parking
precincts also being developed in suburban locations.
spaces. Asking rental rates are reported to be
This will continue to be a theme of the retail market
around $1,100 per square metre net.
in Mackay as new residential development extends
away from the CBD. Outside of the shopping centres, Hervey Bay’s retail
market is heavily influenced by the tourism dollar
Taking into account the slowdown in the local
and demand for esplanade front leasing space
economy and the increasing retail space now
17Month in Review
September 2014
remains slow. Asking rates between $250 to $450 rental rates generally between $450 and $650 per Club located in the CBD will undergo a $6.5 million
per square metre with leasing incentives and rent square metre depending on the size and facilities makeover. This will be the first revamp in 13 years
free periods are now very common with one recent offered by the tenancy. and will include a refurbished restaurant with a
negotiation showing just over $160 per square metre woodfired pizza shop and a new Coffee Club café
Retail in Townsville’s CBD continues to evolve
net, well below any previous rates. This indicates to the Flinders Street frontage. The top level is
with the recent opening of City Lane, a Melbourne
that lessors are still willing to negotiate to lease a proposed to be renovated for office use with new
inspired laneway redevelopment project undertaken
premises. Recent sales activity in the retail sector stairwells and lifts.
by Lancini Group. This day and night laneway
is limited however two significant transactions
precinct featuring four restaurants and bars is a first In addition to the above, over the past few months we
include the $2.7 million sale of a Foodworks anchored
for the city. The concept has been well received and have seen a number of other retail tenancies open in
convenience centre at Craignish, analysed to reflect
the second stage of the redevelopment project, City the city centre which all bodes well for bringing some
a yield of 9.84% and Officeworks in October 2013 for
Arcade, is due to open in late September. This is a vibrancy and activity back to the retail sector in the
$6.55 million with a passing yield of 8.89% however
mixed use development with a food court, retail and city centre.
analysing to reflect a yield of 7.23%.
attached multi level office building and provides a
Cairns
pedestrian link between Flinders and Sturt Streets.
There are also reports that Aldi The office building is due to open later this year
The Cairns retail market has progressively faded
since the start of 2008 as a result of the local
has secured a site adjoining the and will reportedly be occupied by the James Cook
economic downturn leading to reductions in
University teaching and student service centre, which
Urangan Central Shopping Centre will assist in bringing increased activity to the CBD.
consumer and tourism spending. Though we now
perceive the Cairns retail market to be passing
which is to also include a second The Honeycombes Central Village cinema complex through the bottom of the cycle and the Cairns
McDonald’s outlet for Hervey Bay. is also nearing completion and will encompass a five market overall is starting to improve, the patchiness
theatre, 780 seat Birch Carroll and Coyle cinema of the economic recovery means that the retail
Townsville
along with new to Townsville retailers Max Brenner property market has remained flat. It must also be
The better performing retail investments in the
Chocolate Bar and Guzman y Guzman and returning said that retail property sales in Cairns are extremely
Townsville property market at present are the
Commercial
tenancy of Hogs Breath Cafe. Once completed, sporadic, with most sales involving retail property
modern suburban neighbourhood convenience
Central Village and the nearby Snap Fitness and being of mixed use retail and office buildings or
centres, particularly those located in areas of
Comfort Food Deli precinct will together provide 14 tenant buyouts of single premises.
expanding populations, along with the purpose built
cafes, restaurants and dining outlets.
fast food buildings with drive through service access. There was an increase in vacancy levels in the retail
On the back of these retail investments, it was sector resulting from a number of business closures
These types of investments with strong anchors are
recently announced that the Cowboys Leagues attributed to the tough economic environment
reflecting yields in the 8% to 9% range with gross
18Month in Review
September 2014
during the GFC. However the increase was only
a relatively mild increment to the high levels of
long term vacancies in some areas that pre-dated
the downturn. High exposure CBD space remains
reasonably well occupied, with vacancies most
noticeable in the lesser exposure locations and
on the CBD fringe. Rents have remained generally
stable, showing ranges of $600 to $800 per square
metre per annum for prime CBD space, and $1,000
to $1,500 per square metre per annum in key tourist
precincts such as the Cairns Esplanade. However
recent signs are that CBD prime rents are starting
to strengthen, which may well be the proof that the
market has bottomed.
Blue chip retail located within the main Esplanade
tourist strip as well as the central business district
show reasonably low vacancies, though there is also
limited demand from new businesses. There remains
good investor demand for well leased properties -
these rarely come onto the market.
Commercial
19Month in Review
September 2014
Northern Territory
Darwin
Stuart Highway Land - Just Keeps Getting Better:
We can see the ‘herd’ moving with a particular
emphasis on Stuart Highway exposed sites with
retailers and businesses now realizing supply of
these sites is becoming limited. There are several
properties under contract with settlement in the next
few months.
Historically market values of Stuart Highway land
was its highest from the CBD out to Winnellie. That
dynamic is now changing with Berrimah Business
Park anchoring the geographic centre of Darwin and
the under construction Coolalinga Retail shopping
centre anchoring the eastern end in the rural
residential areas. With large subdivisions planned
at Berrimah Farm and East Palmerston (e.g Zuccoli)
vehicle traffic will only continue to increase and this
is the key attraction for retailers.
Tiger Brennan Drive while offering a second
alternative route to the outer eastern suburbs has
very limited supply of industrial or commercial
land given it is mostly low-lying undevelopable land
or held in ownership by the Northern Territory
Commercial
Government or the Crown.
20Month in Review
September 2014
Western Australia
Perth owners seek to grow and reposition their assets. of Sunday trading and an 80% take-up of opening by
With weakness in discretionary spending habits of Planning is underway for a circa $400 million retailers.
consumers continuing, retail owners have been under expansion of the Garden City Shopping Centre in
Some of the retail horror stories continue to be
pressure to maintain occupancy in their assets, with Booragoon. Lakeside Joondalup is into a 28,336
the Subiaco retail areas of Rokeby Road between
evidence of increasing incentives in this market. square metre expansion project that will be
Bagot Road and Hay Street and Hay Street between
Vacancy rates have increased marginally throughout completed next year. Midland Gate is extending
Rokeby Rd and Axon Street, as well as the retail
the year across the board, however remain lowest another 19,395 square metres which is planned to be
area surrounding the modern Claremont Quarter
in regional shopping centres. However, there is an completed in 2017.
development along St Quentin’s Avenue and Bay
increasing trend of tenants on short term leases,
Meanwhile, in the sub-regional shopping centre View Terrace. In these locations, vacancies have risen
holding over and pop-up style shops.
space, Stockland Baldivis is planning an expansion of and rents have dived, in some instances by as much
22,341 square metres with completion due in 2016. In as 60% over market peaks.
The biggest demand for space regional Port Hedland, the South Hedland Shopping
South West WA
comes from entertainment or food Centre which is owned by Charter Hall Retail REIT
The retail sector in the south west of Western
is nearing completion of a 1,400 square metre
related retailers. extension.
Australia continues to struggle on the back of
pressure from the still relatively high Australian
In the Perth CBD, international retailers are most
Sub-regional shopping centre owners are also dollar, internet sales and the propensity for the
active with TopShop recently announcing entry into
focusing on actively managing their assets and consumer to reduce debt rather than spend.
the Perth market which follows the announcement
maintaining occupancy levels. Leasing incentives
that Zara is to open a Perth CBD store as well. Vacancies continue to appear in the Bunbury CBD.
are typically being offered which translate to a
Vacancies are increasing in the Busselton and
The largest retail transaction in Western Australia contribution to fitout equivalent to six to twelve
Dunsborough CBD’s but the impact appears to be
during 2013 saw Westfield sell their one-third stake in months rental on a typical five year lease.
less apparent.
the Karrinyup Regional Shopping Centre for $246.6
New retail trading laws introduced in August 2012
million to two-thirds majority owner, UniSuper. The stand out performer in the retail sector is in the
have allowed Sunday trading for all general retail
Commercial
Management of the centre remains with AMP Capital Margaret River CBD. Retail rents in the main strip
shops, including major department stores and
Shopping Centres. The deal was reported on a 5% in Margaret River have remained relatively high,
supermarkets, between the hours of 11 am and 5 pm.
capitalisation rate on passing income. The deal however there appear to be very few vacancies.
The decision whether to open on a Sunday remains
values the centre at $740 million. This was a $117
with the retailer as some of the smaller retailers do If you are currently game enough to invest in retail
million uplift on book value.
not receive any benefit from opening on Sundays. then the Margaret River retail market in the south
Over the next few years construction across the Generally however, major retail centres are reporting west corner of the state is the pick of the bunch
regional centre sector will increase as institutional an average of 20,000 additional visitors as a result currently.
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